Walgreen posts 4Q loss on Alliance Boots charge

September 30, 2014

Walgreen booked a $239 million loss in its fiscal fourth quarter after swallowing a huge accounting charge from its Alliance Boots acquisition, but the drugstore chain’s results still met Wall Street expectations.

Walgreen Co. said Tuesday that it recorded a non-cash loss of $866 million in the quarter that ended Aug. 31 because it decided to exercise early its option to buy the remaining stake in Alliance Boots that it did not already own.

The Deerfield, Illinois, company bought a 45 percent stake in the Swiss health and beauty retailer in 2012. It had until next year to decide whether to buy the rest of Alliance Boots, which runs the largest drugstore chain in the United Kingdom.

But the company said last month that it had decided to complete that deal. Walgreen spokesman Michael Polzin said that because the company exercised that option early, it had to remove its value from its books. That led to the non-cash charge.

Overall, Walgreen lost $239 million, or 25 cents per share, in the quarter. That compares to a gain of $657 million, or 69 cents per share, in the same period last year. Adjusted earnings, which exclude the Alliance Boots charge, totaled 74 cents per share.

That matched analyst expectations, according to Zacks Investment Research.

Walgreen’s revenue rose more than 6 percent to about $19.1 billion, while analysts expected $19.02 billion.

Walgreen runs the nation’s largest drugstore chain, with more than 8,200 locations. It said sales from its established stores climbed more than 5 percent in the quarter. That’s an important measurement for retailers because it leaves out the impact of recently opened or closed locations.

But Walgreen executives cautioned Tuesday that the company is dealing with lower reimbursement for prescriptions as well as rising prices for generic drugs. That cuts into the profitability of those drugs if the reimbursement that the company receives doesn’t keep up with the price increases.

“We are realistic about the headwinds we face for the year,” CEO Greg Wasson said, adding that Walgreen also is dealing with a “cautious consumer.”

Walgreen wrapped up a rough quarter Aug. 31 in which its stock price tumbled 16 percent while the Standard & Poor’s 500 index rose 4 percent. Much of that drop came in early August after Walgreen lowered a forecast for earnings it expects after combining with Alliance Boots.

It also announced that it would not pursue an overseas reorganization with Alliance Boots that could have trimmed its U.S. taxes. The drugstore chain said it wasn’t sure such a move would pass IRS scrutiny, and it acknowledged feeling pressure to not pursue the move known as an inversion. Several politicians had scolded the company, which draws nearly all its revenue from U.S. stores, for even considering it.

Walgreen Co. shares slipped 54 cents to $59.06 in midday trading Tuesday while broader trading indexes rose slightly. The stock price had climbed almost 4 percent so far this year, as of Monday’s market close.

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